BLOG:  Digital Financial Reporting

This is a blog for information relating to digital financial reporting.  This is my brain storming platform.  This is where I think out loud (i.e. publicly) about digital financial reporting. It is for innovators and early adopters who are ushering in a new era of digital financial reporting.

Much of the information contained in this blog is synthasized, summarized, condensed, better organized and articulated in my book XBRL for Dummies and in the chapters of Intelligent XBRL-based Digital Financial Reporting. If you have any questions, feel free to contact me.

Analysis of Required Disclosures Provides Insight

I have modified the Excel spreadsheet which I use to extract fundamental accounting concepts from the XBRL-based financial reports of public companies.  Using that same information extraction scheme I can now determine of the four required disclosures have been provided for.

So, I took the Excel spreadsheet that I had, modified it to grab the CONCEPT name rather than the value, and then I had it look for concepts related to four required disclosures: nature of business, basis of reporting, significant accounting policies, and revenue recognition policy.

Because the required disclosures are the same for everyone, I put the URL of every public company 10-K for 2016 (last year, not this year yet...that is coming) into the "List" in the Excel spreadsheet.  I pressed the start button, went to yoga, and when I came back two hours later the process was complete.

The results showed that 3,705 XBRL-based reports or 61% behaved as expected and all four required disclosures were found.  But that left 2,318 or 39% that were missing one or more of those four required disclosures.

Now, there are two specific reasons why one of these four required disclosures were not found:

  1. The disclosure exists in the report, but for some reason the wrong concept was used or an extension concept was created.  That is an XBRL error.
  2. The disclosure does NOT exist because the disclosure was not provided. That is an ACCOUNTING error.

The most interesting aspect of this little analysis is that I found that the Accounting Standards Codification (ASC) was "squishy" in terms of stating the requirements for these disclosures.  I would have figured that the ASC would be more "crisp"; providing clarity that these discourses are required.

There is specific wording that makes it clear that the nature of business, significant accounting policies, and revenue recognition policy are required.  But the basis of reporting disclosure is not specifically mentioned.  However, several things make it obvious that the basis of reporting is a required disclosure:

  • Empirical evidence shows that 95% of all public companies provide this disclosure. What would the rational for having 95% make this disclosure and 5% not be required to make this disclosure?  I am not saying that there is not a specific reason that could be provided.  I am saying that if you don't provide a specific reason why it is not required; then by default it seems like it would be hard to justify making the disclosure if 95% of other public companies do.
  • The basis of reporting essentially states explicitly the basis that was used to create a report.  US GAAP is just one basis.  IFRS is another basis of reporting.  Other Comprehensive Basis of Reporting (OCBOA) is also a basis.  There are others.  It is also good to include if the report is prepared using the accrual or cash basis, that the currency units are US Dollars.  That is pretty important information and the significant accounting policies state that important policies must be disclosures.  This is pretty darn important.
  • Every audit report provides the basis of reporting.  All of these 10-Ks are audited and I would suspect that every audit report provides this information.  However, the audit report is from the auditor, not the reporting entity.  This information in the audit report does not satisfy this disclosure.
  • There is not one professional accountant that I have asked which has said that the basis of reporting is not a required disclosure.  Not one.  Further, every disclosure checklist that I have seen includes the requirement to disclose the basis of reporting.

Do you disagree?  Do you have specific circumstances that you can point out when these disclosures are not required.  (Please read the PDF first, we point out known exceptions but none of them apply to the public companies that I am analyzing as far as I have seen thus far.)

Again, I am going to go look for specific reasons just out of curiosity.  But, I am going to wait until March 2018 when the 10-K season is completed to give the public companies an opportunity to fix as many of the errors as possible.

Finally, what is interesting is that the terms SHALL, MAY, SHOULD, and other terms are really not defined in the ASC.  Contrast this to RFC 2119 which is provided by the Internet Engineering Task Force (IETF) that explicitly define these terms in order to make things work better.  There is a big difference between SHALL and SHOULD. This is another good document on the topic.  And this is an interesting document, Shall We Abandon Shall? Interesting stuff.

CoreFiling XBRL Taxonomy Library

This is a very useful XBRL Taxonomy Library provided by CoreFiling.  What would be even better is if they included all metadata for each of these taxonomies, including business rules.

What would even be better than that would be to be able to edit (i.e. extend) the taxonomies via some sort of a "wiki" mechanism.

Posted on Friday, January 26, 2018 at 02:12PM by Registered CommenterCharlie in | CommentsPost a Comment | EmailEmail | PrintPrint

Getting Started with Accounting Process Automation and Process Robotics

If you understand how to make accounting process automation and process robotics work; then you recognize the need for metadata to make that automation work.  (If you don't understand how to make this work, then you will want to check out Closing the Skills Gap.)

If you want to get started with accounting process automation and process robotics; here is some high-quality, proven metadata that you can use.  There are basically two sets of metadata.

Here is the metadata:

Available implementations:

  • Commercial: XBRL Cloud
  • Noncommercial: Pesseract (working proof of concept)
  • Noncommercial: Excel prototypes for fundamental accounting concept relations
  • Commercial: FlexRule(only certain reporting styles of fundamental accounting concept relations)

You can implement accounting process automation and process robotics using proprietary approaches such as a proprietary rules engine, the semantic web stack of technologies, or the XBRL stack of technologies.  My personal preference is the XBRL stack of technologies extended with additional non-standard functionality to overcome the known deficiencies of an XBRL Formula Processor.

This business logic gap analysis can help you understand which approach might best suit your needs.

To understand more possibilities, see the document Blueprint for Creating Zero Defect XBRL-based Financial reports.  If you want some more tips and tricks, see Putting the Expertise into an XBRL-based Knowledge Based System for Creating Financial Reports. If you want all the details, then you will want to check out Intelligent XBRL-based Digital Financial Reporting which basically has an accumulation of my notes for the past 20 years of working with XBRL.

Posted on Wednesday, January 24, 2018 at 07:37AM by Registered CommenterCharlie | CommentsPost a Comment | EmailEmail | PrintPrint

Closing the Skills Gap

The document; Closing the Skills Gap: Specifics as to what professional accountants need to learn to survive and thrive in the digital age of accounting, reporting, and auditing; is my best attempt at summarizing information which I wish I would have known 20 years ago when I started fiddling around with what became XBRL.

I tried to provide the least amount of what I would consider to be a complete set of basic information a professional accountant would need to correctly understand "the artificial intelligence revolution".  Here is the executive summary:

  • Changes that will be brought about by what is being called "the artificial intelligence revolution" among other terms will unquestionably be significant.  It is not useful to overstate or understate the impact.
  • A gap exists between what professional accountants understand today and what they need to understand to survive and thrive in the digital age of accounting, reporting, and auditing.
  • This gap in understanding capabilities of technologies such as artificial intelligence makes it difficult for professional accountants to grasp the changes that are not only inevitable but are imminent.
  • Undergraduate and graduate college curriculums need to be updated for these changes.  Continuing professional education offered likewise needs to be updated.
  • The "learn to code" hysteria is not the right answer.  Having professional accountants become more proficient with information technology or computer skills is likewise not the right answer for most professional accountants.
  • Computers work per the rules of mathematics.  Mathematics works per the rules of logic.  The primary gap that needs to be filled is for professional accountants to gain a sound understanding of how computers actually work and the skills necessary to leverage these very useful tools of the digital age of accounting, reporting, and auditing appropriately. Understanding the basics of logic is the key to prospering in the digital age.
  • Business logic can be used by professional accountants and other business professionals who have little or no formal training in logic.  A sound understanding of business logic enables effective communications with information technology professionals.
  • The artificial intelligence revolution will not only impact accounting professionals, rather all business professionals will be impacted.  Closing this knowledge gap sooner rather than later can help position professional accountants as leaders for the digital age of accounting, reporting, and auditing.

Essentially, what professional accountants and other business professionals need to learn to do is to "think critically" about data and information. What I mean by that is that they need to be able to be consciously conscious when working with data and information.  They need to be rigorous, deliberate, and methodical.

Any comments or other feedback would be gladly accepted.

Disclosure Best Practices Microsoft Access Database Application Prototype

This ZIP archive contains a little Microsoft Access 2010 Database application (prototype) that I created.  If you don't have Microsoft Access 2010 or greater, you can download a runtime version of Access here.

This video shows you what the application does.  Basically, the application provides a number of best practice examples of US GAAP disclosures.  I have provided 33 disclosures.

What the application does is let you look at best practice disclosure examples like these for public companies that have provided that disclosure, like these.

Why this is interesting is that you can easily extract specific examples from XBRL-based financial reports of public companies that file with the SEC.  I am showing 33 disclosures, but you can do the same thing for EVERY disclosure.

I have a much, much better application that I created, but it uses XBRL Cloud's web service.  But to use that, you need a username and a password which you have to get from XBRL Cloud.  I removed all the functionality that I had used from XBRL Cloud and therefore all the features provided by XBRL Cloud, such as the ability to click on all elements and get Accounting Standards Codification references, concept definitions, etc.

What I want to do is create a more complete version of this application and make it available to intermediate accounting students.  If anyone is interested in helping out with this little project, let me know.

Posted on Monday, January 22, 2018 at 02:42PM by Registered CommenterCharlie in | CommentsPost a Comment | EmailEmail | PrintPrint